Copper-Bottomed Settlement: Contribution Claims in Follow-On Damages

Summary: In most follow-on damages claims, the claimant will not waste energy and resource in pursuing each and every cartelist named by the European Commission; they will focus their energies on pursuing a tactically chosen few. It is then up to these named defendants to draw in other defendants, by way of Part 20 claims, to try and recoup a contribution from them as appropriate.A recent High Court decision (Newson v IMI and Delta (2015)) had considered whether Part 20 defendants are entitled to pursue limitation arguments in respect of the claimant’s case to avoid having to make any contribution payment, even after the proceedings had been settled. In concluding that they cannot, the court has created some interesting strategic options for both claimants and defendants involved in follow-on damages claims.

In most follow-on damages claims, the claimant will not waste energy and resource in pursuing each and every cartelist named by the European Commission; they will focus their energies on pursuing a tactically chosen few. It is then up to these named defendants to draw in other defendants, by way of Part 20 claims, to try and recoup a contribution from them as appropriate.

A recent High Court decision (Newson v IMI and Delta(2015)) had considered whether Part 20 defendants are entitled to pursue limitation arguments in respect of the claimant’s case to avoid having to make any contribution payment, even after the proceedings had been settled. In concluding that they cannot, the court has created some interesting strategic options for both claimants and defendants involved in follow-on damages claims.

The Newson v IMI and Delta case

The claimant in these proceedings, Travis Perkins, was seeking damages in a follow-on action, relating to a European Commission finding of price fixing in the copper and copper alloy fittings market. The damages action was commenced more than 6 years after the end of the cartel as established by the European Commission and in their defence, the defendant, IMI, stated that the claim was time barred under the Limitation Act 1980. The claimant denied this in its Reply, contending that there had been concealment of the cartel, which would extend the limitation period (pursuant to s.32 of the Limitation Act).

The defendants subsequently brought Part 20 proceedings against 23 other cartel members, all addressees of the European Commission’s cartel decision, seeking contributions or indemnities from each of the Part 20 Defendants pursuant to s.1(1) of the Civil Liability (Contribution) Act 1978. As various parties dropped out of the litigation over time, three groups were ultimately left: Travis Perkins, IMI and a Part 20 defendant, Delta. In December 2014, the main proceedings were settled. The actual settlement figure has not been disclosed although IMI confirmed it was a “substantial discount” on the original claim. This left only the contribution claim unresolved.

The Contribution Claim

Delta’s defence to the Part 20 claim admitted the Commission’s decision, and admitted joint and several liability in principle. However, it maintained the limitation argument against the original claim and provided detailed rebuttal evidence as to why the claim was time barred. This detailed evidence was never incorporated into IMI’s defence. The crucial question for the Court to decide was this: could Delta resist a contribution payment on the basis that the underlying claim by Travis Perkins had been brought out of time? The decisive legislation to be considered in answering this question is s.1(4) of the Civil Liability (Contribution) Act 1978.

Section 1(4) enables a defendant who has made payment in bona fide settlement of a claim to recover contribution provided that the defendant "would have been liable assuming that the factual basis of the claim against him could be established". Did the “factual basis of the claim” include the assertion by Travis Perkins that the cartel had been concealed? The High Court held that it did and that this would have been established by Travis Perkins in due course. IMI’s pleadings had not been altered before settlement to adduce factual evidence showing that Travis Perkins were in fact aware of the existence of the cartel, so it has to be assumed that Travis Perkins would have been able to adduce facts which proved their case.

This makes sense, if only because the alternative approach would create a situation that would not look out of place in Alice In Wonderland. Consider how the contribution proceedings would play out if the claimant’s factual case was not treated as established: IMI would have had to call evidence to prove their own liability; meanwhile, the Part 20 defendant, Delta would try to produce evidence showing that IMI was not liable.

Strategic implications

The risk of contribution claims can pose hurdles to the successful settlement of follow-on damages claims. A claimant considering bringing a follow-on damages claim would be wise to save time and cost by only pursuing a few key cartel members, leaving it up to the remainder of the defendants to fight out between themselves as to how loss should be allocated. This can lead to protracted settlement negotiations, or reductions in the amounts offered to the claimant as the settling defendant inevitably tries to hedge for any risk that, later down the line, a Part 20 defendant might try to oppose a claim for contribution on the ground that the claimant’s factual case had never been properly established.

This judgment will go some way towards assuaging these concerns. However the real change to the impact and effect of contribution proceedings will be seen when the new Damages Directive comes into effect. Due to come into force at the end of 2016, it will ensure that a settling defendant is protected from contribution claims by co-defendants that subsequently settle. The effect of this provision will be to increase the incentives on defendants to settle quickly, as there will be a prospect of getting out of litigation early at a lower cost, without risk of being asked to make further contributions later down the line.

The certainty provided by the new Directive should also similarly assist a claimant. Where previously a claimant may have been required to provide an indemnity to the settling party to cover the risk of contribution claims later on (or otherwise accept a lower settlement figure to compensate a defendant for this potential risk) the new Directive should enable a claimant looking to settle at an early stage, to make an approach without needing to take these factors into account. The result should be a far more certain environment for constructive settlement discussions to take place early on.

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